Does ChengDu Hi-Tech Development (SZSE:000628) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in ChengDu Hi-Tech Development (SZSE:000628). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for ChengDu Hi-Tech Development

ChengDu Hi-Tech Development's Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. We can see that in the last three years ChengDu Hi-Tech Development grew its EPS by 6.5% per year. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. EBIT margins for ChengDu Hi-Tech Development remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to CN¥8.2b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are ChengDu Hi-Tech Development Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own ChengDu Hi-Tech Development shares worth a considerable sum. As a matter of fact, their holding is valued at CN¥142m. That's a lot of money, and no small incentive to work hard. Despite being just 0.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to ChengDu Hi-Tech Development, with market caps between CN¥14b and CN¥45b, is around CN¥1.5m.

The ChengDu Hi-Tech Development CEO received CN¥825k in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add ChengDu Hi-Tech Development To Your Watchlist?

As previously touched on, ChengDu Hi-Tech Development is a growing business, which is encouraging. Earnings growth might be the main attraction for ChengDu Hi-Tech Development, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, you'd argue this one is worthy of the watchlist, at least. What about risks? Every company has them, and we've spotted 3 warning signs for ChengDu Hi-Tech Development (of which 2 are a bit concerning!) you should know about.

Although ChengDu Hi-Tech Development certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have strong insider backing.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.